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Assessment  Very small number of entries in either direction  Linkages are not ‘dense’ – firms thinly spread across many sectors  Linkages are not ‘pivotal’ – firms not dominant in any significant sector  Many ‘early’ entries on both sides – SA/China amongst the first international destinations of investing companies  But also many withdrawals – failed entries – on both sides  Entries too small  Poor acquisitions  Companies over-extended internationally  Small market size in SA (Chinese autos: temporary withdrawal?)  Most successful Chinese firms have been large SOEs, both market- and resource-seeking  Most successful SA firms have been ‘national champions’ (including ‘emigres’)

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Case study I - Chinese brown goods manufacturers in SA  5 producers in SA - 3 are Chinese  Questions:  Why did Chinese firms invest in apparently declining manufacturing sub- sector in SA?  What are Chinese firms’ ‘O’ advantages? How do they invest profitably?  Should SA be encouraging more Chinese (or other Asian) firms to invest in SA manufacturing to enhance job-creation, skills transfer & manufacturing exports?  All three investors are major electronics groups in China, and entered SA very early in their own internationalisation which was response to intense competition in Chinese TV manufacturing as plan shifted to market  Chinese firms have a key ‘O’ (ownership) advantage – ability to import own CRTs & other key components  They entered SA due to its strong market potential in early 1990s  Potential has not been fulfilled – market growth, but supplied by imports Limited competition, small market with few scale economies, unpredictable policies

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Case study I – Brown goods (continued)  Domestic firms have withdrawn from own production into contract production & importing  But Chinese firms have been profitable and expanded & diversified in SA  Operate at low end of TV market & moved into washing machines, stoves  Collectively supply almost 60% of local TV set output, 25% of domestic market  Now also importing higher-end home electronics appliances and establishing brands in market  Limited ‘dynamic’ gains or spillovers transfer of technology but benefits nonetheless higher consumer welfare, stable employment  Demonstration of potential for durable investment in manufacturing in SA providing modest but stable profitability  Manufacturing ‘business model’ – low margins, mass market products  Low overheads  Access to low-cost production in home economy

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Conclusions  China is SA’s major trading partner but FDI relationship is less well developed  Official data reflects large value and fast growth since 2007  But small number of firms & relationship is not ‘dense’ – firms spread across many industries, limiting impact  Qualified support for view that ‘South-South’ investors are more willing to enter than ‘North-South’ & bring greater benefits to host economy  Very early entry by many firms  But high failure rates suggest poor risk assessment & premature internationalisation are common  Benefits from ‘South-South’ FDI need to take account of specifics of investors’ advantages and of their performance  Policies:  Better official data – more accurate financial values & firm-level data  More focus on investment relationship with China (in addition to trade)  SA needs more Chinese (& Asian) inward FDI, especially in labour- intensive activities (with appropriate trade policy support)  SA needs to promote OFDI, especially by ‘national champions’, with mechanisms to facilitate home country gains  Both governments should encourage & facilitate co-operation between SA & Chinese firms, in both economies & in third markets

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